On December 12th, international crude oil futures plummeted by nearly 4%. The settlement price of the main WTI crude oil futures contract in the United States was $68.61/barrel, a decrease of $2.71 or 3.8%. The settlement price of Brent crude oil futures main contract was $73.24/barrel, a decrease of $2.79 or 3.7%. Oil prices have hit a 6-month low, mainly due to an unexpected increase in CPI data, and the rebound in inflation has lowered market expectations for the Federal Reserve's interest rate cut early next year; Overlapping market concerns about oversupply.

Unexpected rise in US inflation data puts pressure on oil prices

On December 12th, data released by the US Bureau of Labor Statistics showed that the US CPI increased by 3.1% year-on-year in November, which was consistent with market expectations, with a previous value of 3.2%; The non seasonally adjusted core CPI increased by 4% year-on-year, consistent with market expectations, with a previous value of 4%. In November, the CPI increased by 0.1% month on month, slightly higher than the market's expected 0%, with a previous value of 0%.

The unexpected rise in inflation data has added insult to injury to the already weak oil market, exacerbating the decline in crude oil. The market has further strengthened the view that the Federal Reserve is unlikely to cut interest rates early next year. Last Friday, the US non farm payroll data performed positively, with widespread expectations that the Federal Reserve may cut interest rates early. At present, the duration of the Federal Reserve maintaining high interest rates may be extended, and a long-term high interest rate environment may slow down economic growth, suppress energy demand, and limit the space for growth in crude oil demand.

Market Concerns over Oversupply of Crude Oil

The results of the recent OPEC+ production policy meeting did not meet market expectations. Firstly, the reduction in production was not as expected; Furthermore, there is doubt about the voluntary nature of the reduction in production and its implementation efforts. The supply side will face greater pressure in the future.

In addition, US crude oil production continues to operate at a high level: Tuesday, the US Energy Information Agency (EIA) short-term energy outlook report showed that US crude oil production is expected to be 12.93 million barrels per day in 2023, compared to the previous expectation of 12.9 million barrels per day. The expected crude oil production in the United States in 2024 is 13.11 million barrels per day, compared to the previous expectation of 13.15 million barrels per day. Both short-term and medium to long-term US crude oil production has shown relatively abundant rigidity. At the same time, EIA has also lowered future crude oil prices, with WTI crude oil prices in 2023 at $77.63/barrel, compared to previous expectations of $79.41/barrel. The expected WTI crude oil price in 2024 is $78.07/barrel, compared to the previous expectation of $89.24/barrel.

EIA Lowers Global Oil Demand Growth Expectations for 2024

On the issue of future oil demand prospects, EIA and OPEC have shown differences, with the most recent OPEC monthly report showing optimism about the growth of oil demand next year. But the data released by the EIA yesterday contradicts it, as the EIA believes that oil growth may slow down next year. Specifically, the report shows that the EIA has lowered its estimated growth rate for global oil demand in 2024 by 60,000 barrels per day to 1.34 million barrels per day. The report also lowered the estimated increase in global oil demand for 2023 by 30,000 barrels per day to 1.85 million barrels per day. Many negative news intensified the decline in the oil market.

SunSirs crude oil analysts believe that there is currently a dual pressure from both macro and supply and demand sides on crude oil. As inflation warms up, the future policy choices of the Federal Reserve may become narrower, and the duration of maintaining high interest rates may be extended, which will bring pressure to the oil market in the medium to long term. In the short term, the supply-demand game will continue to play a role, and the supply side still needs to pay attention to further OPEC's production reduction actions in the future. In addition, although US crude oil production is at a high level, its future growth space is also limited due to capital expenditure restrictions. The sluggish demand outlook will dilute the effectiveness of OPEC's production control. At present, the market is waiting for the energy outlook reports from OPEC and the International Energy Agency (IEA) to be released next week, and there is a demand for adjustment in the oil market this week. Overall, the oil market may remain weak in the near future or continue to seek downward space.

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